News / Economy

Fear of Bubble as Sanctions Stoke Iran Property Boom

FILE - General view of housing complexes in northwestern Tehran, February 2011.
FILE - General view of housing complexes in northwestern Tehran, February 2011.
Reuters
The Iranian property developer leant back in his chair, drew hard on a shisha pipe and looked down at photographs of a Tehran apartment block on his tablet computer.
 
"I designed it myself," he said proudly as he blew a cloud of scented smoke out into Dubai's night air.
 
The pictures showed the lavish interiors of apartments and penthouse suites in a 20-floor development his company recently completed in Niavaran, one of the Iranian capital's wealthiest areas, with views towards mountains to the north.
 
One of many towers to have sprung up on the Tehran skyline in recent years, it is part of a property boom due indirectly to sanctions imposed by the United States and its allies against the Islamic Republic over its nuclear activities.
 
While the sanctions threaten to bring the Iranian economy to its knees, million-dollar apartments fitted out with the best imported equipment have become ever more common in Tehran.
 
Embargoes imposed on the oil and banking sectors since late 2011 have sent the Iranian rial currency crashing, pushing up import prices and contributing to spiraling overall inflation.
 
Wealthy Iranians, often unable to move money abroad due to the banking sanctions, have tried to protect their savings by turning to property at home, further stoking the market.
 
Developers have reaped the rewards but some now believe a bubble is forming and fear the consequences should it burst. For poorer Iranians, the boom is creating more immediate problems as it stretches their ability to provide for their families.
 
"Until around two years ago, the market rose steadily. Then it started going crazy," the developer said on a visit to Dubai.
 
"You can't believe how quickly everything's gone up," he said, asking not to be named.
 
The cost of apartments in his developments — among the most sought after in Tehran — have almost tripled in two years, he said. They now sell for about 200 million rials ($5,500) a square meter, and even his medium-sized apartments cost the local currency equivalent of $1 million.
 
Property inflation has spread across Tehran and is now being felt around the country, say investors, estate agents and prospective buyers.
 
"Prices have gone up drastically in recent months," said Hooman Bina, a Tehran-based professional property investor. "There's even been a hike since Persian New Year [on March 20]."
 
Demand Vs. Costs

Iranian manufacturing is grinding to a near halt and unemployment is rising. In April the International Monetary Fund forecast the economy would shrink 1.3 percent this year. This has left investors with few opportunities beyond construction, and estate agents say it is a seller's market.
 
"A lot of people have started buying places, especially small apartments, just to protect the value of their money. Real estate looks like a safe investment, at least for now," said a Tehran-based analyst who — like many Iranians in the current sensitive political atmosphere — did not want his name to appear in international media.
 
Everything from the cost of land to equipment for new homes has soared.

"The materials used in houses such as air conditioners, elevators, wood, iron and steel, especially in buildings in northern Tehran, are of very high quality and imported from abroad," said Bina. "Everything imported is much more expensive now."
 
With the rial at 36,000 to the dollar in the open market, Iran's currency is around a third of the value it had in mid-2011, making imported goods far more expensive.
 
To sell million-dollar apartments in plush areas of northern Tehran, developers need to provide the best fittings on the market. Despite the sanctions, top quality European products such as Poggenpohl kitchens and Siemens white goods from Germany are available alongside even some American ones.
 
Those Iranians with access to hard currency are in the best position of all. Their dollars or dirhams go as far as they did in 2011, and in some cases farther, because the U.S. and Gulf currencies held their value while the rial plunged.
 
"I'd been meaning to upgrade my apartment and this is a great opportunity," said an Iranian businessman looking out over Dubai from his 18th floor office. He settled in the United Arab Emirates 20 years ago but regularly visits Tehran on business.
 
Out of Reach

As with every boom, many are missing out and struggling to afford a home as grocery and fuel prices also soar, however. After saving for 10 years, Mohammad Hossein's hopes of buying a family home are further away than ever.
 
Worse still, the surge has also pushed up rents and the 38-year-old shoe factory worker has had to move with his wife and infant to a smaller apartment in Tehran because the family could not afford the landlord's demand for an increase.
 
"Prices have gone up so much that people like us can only afford to buy or rent an apartment half the size of what they could afford with that same money two years ago," Hossein said.
 
Iran has an unusual rental system, called rahn, in which a tenant "lends" the landlord a sizeable sum, sometimes with a modest monthly rent. The landlord uses the money as an interest-free loan — a valuable commodity when annual interest rates are around 20 percent — before returning it after an agreed period.
 
When 28-year-old graphics graduate Parastoo moved to Tehran earlier this year, she soon found out her budget could not keep up with the rents. Eventually she found a 51-square-meter (550-square-foot) apartment in central Tehran, paying rahn of 385 million rials ($11,000) in addition to a monthly rent of 2.5 million rials.
 
"It was a real struggle," said Parastoo, who spoke by phone from Tehran and asked to be identified only by her given name. "The owner of my apartment originally wanted to sell it but because of the daily fluctuations in price he decided to rent and wait for prices to stabilize."
 
Decimated economy

Iran's property phenomenon reflects just how badly the economy is suffering from "stagflation" — zero growth alongside high inflation and increasing unemployment.
 
According to official figures, inflation is running at more than 30 percent but some analysts estimate the real rate could be double or even triple that.
 
"Iran has definitely entered an era of stagflation. It's very vulnerable and its own economic policy has not helped," said Steve Hanker, professor of applied economics at Johns Hopkins University in Baltimore, who estimates annual inflation at over 100 percent. "Without oil, everything would collapse overnight."
 
For those in the business, the rapid property inflation has now become worrying. The national union of property advisers says that in the second half of the Persian year [up to March 20], prices went up more than the rate of inflation.
 
"The purchasing power of prospective buyers is going down with the increased rates," said union head Mustafa Khosravi as quoted by Mehr news. "We want to see price stability because this leads to increased prosperity in the market."
 
Real estate agents say business has slowed in recent weeks and speculate this may be due to uncertainty before a presidential election in June to elect a successor to Mahmoud Ahmadinejad. The outcome is far from clear.
 
With fluctuations in the market and the ensuing difficulty of planning large-scale construction, the developer in Dubai said he had halted projects in Iran and was proceeding with caution.
 
"The country has stopped. Nothing's moving but inflation's still going up," he said. "It's a bubble and I don't know what will happen."

You May Like

Could Nemtsov Threaten Putin in Death as in Life?

Dynamic and debonair opposition leader had supported liberal economic reforms, criticized Russian president's aggression in Ukraine More

Oil Smuggling Highlights Challenges in Shutting Down IS Finances

Pentagon spokesman says Islamic State 'certainly continues to get revenue from the oil industry black market' but that airstrikes have made a dent More

India Focuses on Infrastructure, Investment to Propel Economy

Government expects economy to grow at 8 to 8.5 percent in next fiscal year More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Supreme Court Hears Hijab Discrimination Casei
X
Katherine Gypson
February 25, 2015 11:30 PM
The U.S. Supreme Court has heard opening arguments in a workplace religious discrimination case that examines whether a clothing store can refuse to hire a young woman for wearing the headscarf she says is a symbol of her Muslim faith. Katherine Gypson reports from the Supreme Court.
Video

Video US Supreme Court Hears Hijab Discrimination Case

The U.S. Supreme Court has heard opening arguments in a workplace religious discrimination case that examines whether a clothing store can refuse to hire a young woman for wearing the headscarf she says is a symbol of her Muslim faith. Katherine Gypson reports from the Supreme Court.
Video

Video Falling Gas Prices Hurt Nascent Illinois Hydraulic Fracturing Industry

Falling oil prices are helping consumers purchase cheaper petroleum at the pump. But that’s made hydraulic fracturing or “fracking” less economically viable for the companies in the United States invested in the process. VOA’s Kane Farabaugh reports on one Midwestern town that was hoping to change its fortunes by cashing in on the next big U.S. oil boom.
Video

Video Fighting in Sudan's South Kordofan Fuels Mass Displacement

Heavy fighting in Sudan's South Kordofan state is causing hundreds of thousands to flee into uncertain conditions. Local aid organizations estimate as many as 400,000 civilians have been internally displaced since the conflict began more than three years ago, while another 250,000 have fled across the border to refugee camps in South Sudan. VOA's Adam Bailes reports.
Video

Video Lao Dam Project Runs Into Opposition

A Lao dam project on a section of the Mekong River is drawing opposition from local fishermen, international environmental groups and neighboring countries. VOA's Say Mony visited the region to investigate the concerns. Colin Lovett narrates.
Video

Video A Filmmaker Discovers Her Biracial Identity in "Little White Lie

Lacey Schwartz grew up in an upper middle-class Jewish family, in a town in upstate New York where almost everyone she knew was white. She assumed that she was, as well. Her recent documentary, Little White Lie, tells the story of how she uncovered the secret of her true racial background. VOA’s Carolyn Weaver has more on the film.
Video

Video Deep Under Antarctic Ice Sheet, Life!

With the end of summer in the Southern hemisphere, the Antarctic research season is over. Scientists from Northern Illinois University are back in their laboratory after a 3-month expedition on the Ross Ice Shelf, the world’s largest floating ice sheet. As VOA’s Rosanne Skirble reports, they hope to find clues to explain the dynamics of the rapidly melting ice and its impact on sea level rise.
Video

Video US-Cuba Normalization Talks Resume Friday

Negotiations aimed at normalizing diplomatic relations between the U.S. and Cuba resume Friday. On the table: lifting a half-century trade embargo and easing banking and travel restrictions. There's opposition in Congress, but some analysts say there may be sufficient political and economic incentives in both nations for a potential breakthrough this year. VOA's Mil Arcega reports.
Video

Video Pakistan's Deadline For SIM Registration Has Cellphone Users Scrambling

Pakistani cell phone users have until midnight Thursday to register their SIM cards, or their service will be cut off. While some privacy experts worry about government intrusion, many Pakistanis are just worried about keeping their phone lines open. VOA Deewa reporter Arshad Muhmand has more from Peshawar.
Video

Video Myanmar Warns Factory Workers to End Strikes

Outside Myanmar's main city Yangon, thousands of workers walked off their jobs earlier this month demanding a doubling of their wages, pay raises after a year and input from labor unions on industrial regulations. Since Friday, the standoff has grown more tense as police moved in to disrupt the sit-ins, resulting in clashes that injured people from both sides. VOA correspondent Steve Herman visited industrial zones which have become a focus of Myanmar's fledgling workers rights movement.
Video

Video Oscar Winners Do More Than Thank the Academy

The Academy Awards presentation is Hollywood’s night to reward the best movies from the previous year. It’s typically a lot of glitter, a lot of thank you’s, a lot of speeches. But many of this year’s speeches carried messages beyond the thank you's. VOA’s Carolyn Presutti takes a look.

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

World Currencies

EUR
USD
0.8896
JPY
USD
119.26
GBP
USD
0.6475
CAD
USD
1.2451
INR
USD
61.816

Rates may not be current.